A bulging wallet gives a feeling of wealth.

Those who make policy and those who advise them probably never go out on to the streets in India. An economist writes that the Rs 1000 note should be withdrawn because no one needs to use such a high value note for daily activities. Instead, these notes are used by criminals for shifting large sums of money, for not paying income tax by hiding real incomes and to buy votes by crooked politicians. In fact, an Indian housewife should never need a note higher than Rs 250 in value. How has he arrived at such a magical figure? By maths. The $100 note is 0.25% of US per capita income, so on that basis, and adjusting for Purchasing Power Parity, he has arrived Rs 250. This has been described as 'mathiness' by another economist. Instead he should have asked his maid or driver how often they use a Rs 1000 note. Buying fruits and vegetables for a family of four for one week will cost a better part of Rs 500 and buying rice, atta, dals, cooking oil and washing powder will cost Rs 1000. There are only 21.1 million credit cards in India in a population of 1250 million, who spent a total of Rs 1.9 trillion in the last financial year, while there are 553 million debit cards, who spent Rs 1.2 trillion, which is much less per card. These spends are probably driven by online shopping and could drop precipitously if state governments impose taxes on e-commerce, driving up prices. You have to pay annual fees to banks for cards whereas cash is free. The inflation rate in the US was 1% last year, while retail inflation in India was 5.1% in February. This means that the rupee is losing its buying power every month and should fall in value against the dollar. The rupee is being propped up by remittances by Indians living abroad and by foreign investors who have bought $257 billion worth of equities and $51 billion worth of debt, for a total of $308 billion. If even a fraction of this is sold the rupee will drop, which will push up the price of imports, especially fuel, and add to prices. If that happens even Rs 1000 may not be enough for weekly shopping. India's economy is dependent on cash transactions as the Finance Minister has acknowledged. The informal economy provides employment to 400 million people, which is 90% of the workforce, and generates $780 billion, which is 40% of official GDP. Only 3% of people pay income tax and then have to file tax returns to claim refunds. Rs 650 billion has already been refunded this year. Imagine an army of tax officers, earning huge salaries and perks, engaged in refunding taxes. What a waste of public money. If you add another 400 million to this the whole system will collapse. Fortunately, it costs much less to print a Rs 1000 note than to print notes of smaller value and the RBI earns seigneurage from printing notes. We feel rich with bulging wallets, not plastic.